2023 (6) TMI 609 - AT - Income Tax

TP adjustment - claim of working capital adjustment - HELD THAT - Assessee had never raised any argument seeking working capital adjustment. It is for the first time before the Tribunal that the assessee has raised a plea for grant of working capital adjustment. For adjudicating additional ground no fresh document is required to be adduced. Therefore, we admit additional ground of appeal. Since, the relief sought has been raised for the first time before the Tribunal, we deem it appropriate to restore the additional to the file of Assessing Officer for his consideration. The Assessing Officer is directed to consider the claim of working capital adjustment made by the assessee in the additional ground of appeal. Disallowance of sales promotion expenditure u/s. 40(a)(ia) - HELD THAT - We find that similar ground was raised by the assessee in Assessment Year 2016-17 2023 (2) TMI 190 - ITAT MUMBAI where held as in view of this second proviso, we direct the ld. AO to make factual verification as to whether the recipients had duly disclosed the subject mentioned receipts in their returns of income. The assessee is directed to furnish the necessary details in this regard in the prescribed form. Assessee appeal is allowed for statistical purpose

Summary

Issues involved:
1. Enhancement of income due to international transactions not satisfying Arm's Length Price (ALP).
2. Disallowance of sales and promotion expenses under section 40(a)(ia) of the Income Tax Act.

Issue 1: Enhancement of income due to international transactions not satisfying Arm's Length Price (ALP):
The appellant, a branch of Oxford University Press UK engaged in publishing and trading books, contested the assessment order for the assessment year 2018-19. The appellant challenged the enhancement of income by Rs. 2,98,84,072, asserting that the international transactions did not meet the Arm's Length Price (ALP) criteria. The appellant also raised an additional ground seeking a working capital adjustment based on differences with comparable companies. The Transfer Pricing Officer (TPO) disagreed with the comparables selected by the appellant, resulting in an adjustment of Rs. 11,25,21,247. The Dispute Resolution Panel (DRP) partially accepted the objections, limiting the transfer pricing adjustment to Rs. 2,98,84,072. The appellant argued for the admission of the additional ground without the need for additional evidence, citing the case of NTPC Ltd. vs. CIT,229 ITR 353(SC). The Tribunal admitted the additional ground and directed the Assessing Officer to consider the working capital adjustment claim and any other legitimate plea regarding transfer pricing adjustment.

Issue 2: Disallowance of sales and promotion expenses under section 40(a)(ia) of the Income Tax Act:
The appellant contested the disallowance of sales and promotion expenses amounting to Rs. 1,05,21,136 under section 40(a)(ia) of the Act. The Tribunal noted a similar ground raised by the appellant in the assessment year 2016-17, which was remanded to the Assessing Officer for verification. The Tribunal emphasized the requirement for tax deduction at source and directed the Assessing Officer to verify if the recipients had disclosed the receipts in their income tax returns. If the recipients had disclosed the receipts, even if their income was exempt, the disallowance under section 40(a)(ia) should be deleted. The appeal on this issue was allowed for statistical purposes.

In conclusion, the Tribunal allowed the appellant's appeal for statistical purposes, directing the Assessing Officer to reconsider the working capital adjustment claim and verify the disclosure of receipts by recipients for the disallowed expenses.